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The federal minimum wage has been $7.25 an hour since July 24, 2009. Although this is a long way from the first federal minimum wage of $0.25 an hour in the 1930s, it is not high enough according to some members of Congress, a group of over one hundred professional economists, President Obama, the executive director of the National Employment Law Project, and Juliette Fairley, who brings all this to our attention in her MainStreet.com article “Why We Should Raise the Minimum Wage.”

According to the Bureau of Labor Statistics, only about 5 percent of U.S. hourly-paid workers have wages at or below the prevailing federal minimum (there are some exemptions to the minimum-wage provisions of the Fair Labor Standards Act). Minimum-wage workers tend to be people who are young, have never been married, are unskilled, have no more than a high-school education, work part-time, and work in the leisure and hospitality sectors of the economy.

Representative Alan Grayson (D-FL), who just so happens to represent my congressional district, introduced the “Catching Up to 1968 Act of 2013” (HR 1346) on March 21, 2013. It would “increase to $10.50 an hour (adjusted annually based on increases in the Consumer Price Index) the federal minimum wage for employees” and set “the federal minimum wage for tipped employees to be 70% of the federal minimum wage in effect for employees.” The bill has 18 cosponsors.

Over one hundred economists from dozens of universities and research institutes have signed a petition in support of Rep. Grayson’s bill. They argue,

As is conveyed by the title of the bill itself, the real, inflation-adjusted, value of the federal minimum wage has fallen dramatically over time. In 1968, the real value of the minimum wage was $10.65, so that, in fact, an increase today to a $10.50 federal minimum would not even bring the minimum wage fully back to the 1968 standard. Moreover, since 1968, average U.S. labor productivity has risen by 135 percent. Thus, if, since 1968, the U.S. minimum wage had only just kept up with inflation and average labor productivity growth, the minimum wage today would be $25.00.…

In short, the “Catching Up to 1968 Act” will be an effective means of improving living standards for low-wage workers and their families and will help stabilize the economy.

These economists acknowledge that an increase in the minimum wage will cause businesses’ costs to increase, but insist that the increased costs will be “modest” and “readily absorbed” through “minor increases in prices and productivity.”

In his 2013 State of the Union Address, President Obama called for an increase in the federal minimum wage to $9 an hour, automatically adjusted each year for inflation. As president-elect, Obama pledged to raise the minimum wage to $9.50 an hour.

Christine Owens, the executive director of the National Employment Law Project, says it is “time to raise the federal minimum wage — raise it over time to $10.10 an hour, boost the guaranteed minimum wage rate for tipped workers, which has been stuck at $2.13 since 1991, and index the overall minimum wage to the cost of living.”

In Juliette Fairley’s MainStreet.com article about why we should raise the minimum wage, she points out that ten states raised the minimum wage at the beginning of this year: Arizona and Montana to $7.80, Colorado to $7.78, Florida to $7.79, Missouri to $7.35, Ohio to $7.85, Oregon to $8.95, Rhode Island to $7.75, Vermont to $8.60, and Washington to $9.19. The state of New York also recently enacted an increase in its minimum wage in three steps to $9 an hour by December 31, 2015. Nevertheless, Fairley still thinks it necessary that the federal government raise its minimum wage.

Almost without exception, liberals, progressives, and Democrats are always in favor of increases in the minimum wage on the federal, state, and local levels. This allows them to show how much they care for the poor at the expense of businesses that have to deal with the sudden increase in their labor costs. But if a minimum wage of $10.50 an hour, as in Rep. Grayson’s bill, will keep some Americans out of poverty, then why don’t these left-wing groups advocate a minimum wage of $20.50 and keep all Americans out of poverty? Perhaps even they realize that, as the Austrian economist Murray Rothbard said, “You can have as much unemployment as you want, simply by pushing the legally minimum wage high enough.”

Republicans are inconsistent and hypocritical when it comes to the minimum wage. They are inconsistent because some of them support increasing the minimum wage, just not as much and as often as Democrats. They are hypocritical because those who are willing to increase the minimum wage talk about limited government and criticize increased government regulation of the economy — just like all the other Republicans who oppose increasing the minimum wage.

Conservatives make good economic arguments against raising the minimum wage: the minimum wage causes unemployment, because it increases a business’s labor costs and prices unskilled workers out of the market. The problem with this and other arguments made by conservatives about the negative effects of raising the minimum wage is that they are usually countered by liberal economists — even using the same study or data concerning the effects of raising the minimum wage. This doesn’t mean that the conservative economists are wrong; it just means that liberals who support raising the minimum wage can look to their own economists for support.

Constitutionalists are on firmer ground than traditional conservatives, because nowhere does the Constitution grant to the federal government the power to set a minimum wage or to regulate wages in any way, regardless of the economic consequences. In fact, FDR’s National Industrial Recovery Act, which included the first federal minimum wage, was struck down by the Supreme Court in the 1933 case of Schechter Poultry Corp. v. U.S. It is true that in the 1941 case of U.S. v. Darby Lumber Co., the Supreme Court upheld the Fair Labor Standards Act of 1938, which included a minimum-wage provision. But as the Supreme Court cannot rewrite the Constitution, it is still a fact that Congress has no constitutional authority to enact a minimum wage.

But there is just one problem: this prohibition only applies at the federal level. States are perfectly free to regulate wages in accordance with their constitutions. In fact, 19 states and Washington, DC, have minimum wages that are above the federal minimum. In addition to the 10 states mentioned above, which raised their minimum wages this year, the minimum wage is $7.40 in Michigan, $7.50 in Maine and New Hampshire, $7.75 in Arkansas, $8.00 in California and Massachusetts, and $8.25 in Connecticut, Washington D.C., Illinois, and Nevada. Additionally, some cities have their own minimum-wage laws, most notably Albuquerque ($8.50), San Jose ($10.00), and San Francisco ($10.55).

Libertarians have no problem with economic and constitutional arguments against raising or having a minimum wage, but they prefer a more philosophical, three-pronged approach to the issue.

(1) It is simply not the proper role of government to set a minimum wage or regulate the labor market — even if it meant keeping people out of poverty. In fact, governments at any level shouldn’t even have labor departments.

(2) The minimum wage is an assault on freedom. It forbids employees from freely contracting with employers. It prevents people from selling their labor for whatever amount of payment they choose.

(3) The government establishing a minimum wage is nothing more than Soviet-style central planning. How is the optimal minimum wage determined? It is up to government economists and bureaucrats to find the happy medium between subsistence living and unemployment. But, as the Austrian economist Ludwig von Mises explained, “If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reason also reject every kind of government action.” Men do not suddenly become infallible when they act on behalf of government.

No, we should not raise the minimum wage. In a free society, it wouldn’t even exist in the first place.

Reading List

Prepared by Richard M. Ebeling

Austrian economics is a distinctive approach to the discipline of economics that analyzes market forces without ever losing sight of the logic of individual human action. Two of the major Austrian economists in the 20th century have been Friedrich A. Hayek, who won the Nobel Prize in Economics, and Ludwig von Mises. Posted below is an Austrian Economics reading list prepared by Richard M. Ebeling, economics professor at Northwood University in Midland and former president of the Foundation for Economic Education and vice president of academic affairs at FFF.